Download Chris Werner (Venezuela) - Institute for Domestic and International

Chris Werner (Venezuela)
Hillsborough High School
Economic and Finical
Devaluation of Currency
History of Modern Inflation
The history of economic policy devaluation originated in July 1944 after the
Bretton Woods Conference. Bretton Woods was held in response to ensure a stable postwar international economic environment by creating a fixed exchange rate system.
During the time, America was the only major nation that had actually benefited from the
war. Economic opportunity for countries in Europe was very bleak, thus many countries
decided to peg their economies to a fixed exchange rate. It was believed that the
economic power of the United States would assure that economies around the globe
could remain stable, despite the damage done during the war.
Currency Devaluation in Latin America
The Latin American region has been a key example of how devaluation lead to
financial crises and how better economic policies led to sustainability. Although a
number of states throughout South and Latin America experienced periods of severe
economic turmoil during the past two decades, the three major states to collapse into
high-profile crises were Mexico, Brazil and Argentina. It is interesting to know that these
three Latin American nations are the largest by population, largest economies in Latin
America, and are the major political powers in the Latin America sphere of interests.
With the Latin American leader states in turmoil, the pecuniary crisis spread throughout
Latin America. Some of the main areas where the crises broke out were in Latin America
within the countries of Mexico, Colombia, Venezuela, Brazil, Bolivia, Uruguay, Peru,
Argentina, and Chile. Each of these countries experienced increases in inflation, which
eventually led to the devaluation of currency. As each country entered into a state of
crisis, new policies and monetary practices were established seeking a fresh start for these
economies. Although these countries suffered permanent damages to the value of their
currency, the experience allowed many of these countries to be free from peg to the
Dollar. It allowed countries to establish an independent fiscal policy, and created a new
framework for economic policy to prevent future inflationary panics.
Bolivar Fuerte (Venezuelan Currency)
The Bolívar was introduced in 1879, replacing the short-lived venezolano.
Initially, the Bolívar was pegged at par to the French franc. In 1934, the Bolívar was
pegged to the U.S. dollar at a rate of 3.914 Bolívar to 1 US dollar, revalued to 3.18
Bolívar to 1 US dollar in 1937, a rate which continued until 1941. Until the 1970s, the
Bolívar was the region's most stable and internationally accepted currency in South
America. Since that time, however, it has fallen victim to high inflation. Since March 1,
2005, the former currency was officially pegged to the U.S. dollar at a fixed exchange
rate of 2150 Bolívares to the dollar by The Central Bank of Venezuela. The Central Bank
of Venezuela is promoting the new currency with an ad campaign and the slogan: "strong
economy, a strong Bolivar, a strong country". The Venezuelan government renamed the
Bolivar, the Bolívar Fuerte, in an effort to facilitate the ease of transaction and
accounting. The name "Bolívar Fuerte" is only used temporarily to distinguish it from the
older currency that will by used along with the Bolívar Fuerte until 2009. The
Devaluation of currency has crimpled one of the strongest currencies in Latin America.
Even through a series of 6 military coups and revolutions and eventual reform to
democracy since the currency was established in 1879, this currency has never begun to
fail until now. Venezuela advocates for action on the devaluation of currency now.
Goals at Conference
With many Latin nations relying on the United States for economic advice and the
stability of the dollar with the United States doing close to nothing when Latin America
was struck by financial crisis, it seems necessary to unite and build up Latin America into
a strong unified economy and currency. Noting a benefits of a unified currency; which
members of the international community have observed with the ever rising value of the
Euro, it them seems plausible to unify Latin America through Bolivarian ideology under
a united single currency. This would work relatively well considering that many Latin
American countries exhibit the same patterns of trade. Countries that trade a great deal
with each other would benefit greatly as there would be a reduction in transaction costs
and direct trade would benefit neighboring foreign economies. In the beginning, this new
currency might not be the most powerful, but like the Euro, each country’s economy
contribute differently to the value of this new currency and in the end, as each nations
economy grows, so too does their currency. It was difficult to switch at first and was
under criticism from the world, but eventual inflation evened out and brought a unified
Europe into the economic world stage. Countries with weak currencies like Italy and
Spain now became major playing partners and had a lot more say in global economics
due to their stable currency. Smaller nations like Uruguay and Paraguay who tend to be
left out of Latin American business affairs could now have an equal change like Italy and
Spain did. We don’t have to force this change, we can opt out to change to the currency
like our European neighbors did.
Using the Union of South American Nations and or Mercosur; we can institute a
joint coalition which can eventually replace our current currencies. Many South
Americans see Mercosur and the Union of South American Nations as giving the
capability to combine resources to balance the activities of other global economic
powers, especially the NAFTA and the European Union. Venezuela hopes to include
Central, South and nations of the Caribbean to participate and further isolate the United
States into their respective administrative boundaries. The development of the Union of
South American Nations seems to suggest that the countries of South America are not
opposed to regional integration but merely wary of the United States-backed FTAA. We
can create our own economic currency without the United States supervision or
permission. This is the 21st century, and no longer will Venezuela allow the U.S. to pull
out the Monroe Doctrine or Roosevelt Colliery as a means of US control over South
American interests.